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March 7 2018

New Report Highlights Concerns With BHS Music Department Revolving Fund

By: Rich Hosford

Last week the School Committee heard a summary of a report created by the certified public accounting firm Powers & Sullivan that examined the Burlington High School Music and Performing Arts Revolving Fund. The report, which looked in depth at the fund for Fiscal Years 2015 through 2017 was done after an initial examination of the fund by the CPS firm Roselli, Clark & Associations that was submitted last summer found numerous problems with the fund and accounting practices associated with it.

The first issue is that since 2015 the fund has been running a deficit. In FY15 she fund showed an overall decrease of $40,000 that was partially made up with a $10,000 subsidy from other funds. In FY16 the fund lost $37,000 and received a $20,000 subsidy. However in FY17 the fund lost $45,000 and had no subsidy leaving it with a deficit of $51,000. A big majority of the losses came from funding the Community Concert Series, a program for the community that has since been discontinued.

Powers & Sullivan said in the report that programs like the Community Concert Series are not necessarily supposed to be money makers but that under Massachusetts General Law revolving funds cannot run in a deficit and so the fund needs to be made whole from other sources.

The report also highlights some issues with practices engaged in by the Music Department.

“The Roselli, Clark & Associates report dated August 29, 2017 indicated the department maintained a $200 cash box to make change for ticket purchases,” the report states. “This fact made sense as change does need to be made for ticket purchases at the box office. After we started this engagement, John Middleton Cox, Director of the Music and Performance Arts department, came forward and disclosed that his department has been maintaining and unauthorized cash fund. This fund was not just a $200 cash box but instead was used to keep cash received that should have been deposited with the Town Treasurer and to make unauthorized disbursements. We discussed this matter with him and he knew this was not an allowable practice.”

The report said the CPA’s estimated that at least $14,000 of cash expenditures were made over the past three years from funds not deposited with the Town Treasurer. However, they cannot be sure due to the lack of documentation that should have been kept for accounting purposes.

One potential source of discrepancy in the accounting was the unauthorized cash fund, which was kept in a safe in the Music Department that was reportedly used for miscellaneous expenses. By checking documentation provided to them by school staff they determined that roughly $6,000 in payments had been made from the account since the end of FY14. This practice, Powers & Sullivan said, raised concerns.

“Upon review of this documentation we believe that by not processing these expenses through the School Business and Town Accountant’s Offices did not allow them the opportunity to question whether all of the expenses were allowable as education expenses,” the report states. “The cash was secured in a safe that could only be accessed by them. Since both had access and no records were maintained, cash could have been added or removed by one person and the other person would not be aware of this. It is possible that additional revenue received in cash and paid out in cash may have occurred that we are not aware of.”

Another issue raised was that during performances they had two staff members for selling tickets at the door that were paid $40 an hour on weekdays and $60 an hour on weekends. That these employees were paid was not an issue but that they were usually paid in cash was against the rules. In total, Powers & Sullivan estimated that about $8,000 was paid to these employees during the time in question.

Finally, there was an issue with tickets sold either before the show in cash or checks or at the door. The department used an online program called TIX for its sales. Any ticket bought online was registered and could be traced back later. However, the department did not use it to accurately account for tickets sold for cash or checks. Further, the department would pre-print out comp tickets that were sold at the door and these too could not be accounted for after the fact.

“The school began to print Comp tickets prior to the event to reduce ticket lines at the door and avoid any service fee,” the report states. “They would sell the tickets but have no accounting for the value of the Comp tickets sold or any printed Comp tickets that were not sold. Therefore it is impossible to determine how much was received by cash or check. It is also impossible to determine now how much in comp ticket revenue was actually deposited with the Treasurer.”

Powers & Sullivan said they attempted to trace all forms of revenue and compare them with known, reported, deposits. The comparison was imperfect, the report said, because there are known revenue sources they cannot quantify and therefore did not list.

“We do know that at least $14,000 in actual cash revenue was not recorded on the ledger and not deposited on with the Treasurer,” the report states. “Theoretically there should be at least a $14,000 difference between amounts deposited with the Treasurer and our estimate of revenues earned. The net difference for the three year period was only $172. This indicates that our revenue estimate is missing at least one revenue source. Due to the lack of reconciliation procedures we are unable to determine the actual reasons for this conflicting information.”

Finally, the report states that during the analysis of the funds the CPAs identified $31,589 in expenses that were paid from the revolving fund but should have come from a different source, likely the general fund. This is because the expenses benefited the school as a whole rather than the Music Department exclusively. They included equipment, repairs and construction work.

School Committee members said they and the administration take full responsibility for the lack of proper accounting and they will use this report, and the previous one, as a starting point to make the necessary policy changes to ensure all funds are properly managed in the future. Some of those policies, such as one regarding comp tickets and at-the-door-sales have already been put in place.

“I said this at the first meeting and will say it again now: clearly going back over the past, as long as I’ve been around and probably longer, revolving accounts have not been well accounted for,” Chairman Thomas Murphy said. “The new stature is shining a light on that and so clearly the procedures have not been place to account for all these things. That’s not the staff’s fault or employees’ fault, the blame lies up here. We’ve been made aware of it with the first report and this report confirms it. We’ll be getting getting policies in place because just as the blame lies up here, the responsibility for the cure lies up here as well.”

The School Committee also took two votes to get some of the accounting issues up to date and transfer $44,212 from the international tuition account to offset losses incurred by the Community Concert Series.